Bank stress, bond volatility and inflation | – #Bank #stress #bond #volatility #inflation
From Mike Dolan USA and an outlook on the day ahead in global markets
Bank stress burst USAreshaped the entire interest rate map of USA Treasury bond volatility 20It was the highest since 2009.
US consumption on Tuesday prices The release of the February inflation report on the U.S. promised to be the biggest market mover of the week until a few days ago — but now it may be a sideshow to the wider unfolding drama.
Despite moves over the weekend by the Fed and other regulators to protect depositors at failed Silicon Valley Bank (SVB) and Signature Bank, and assurances from US President Joe Biden on Monday that deposits in the broader system were safe, the United States bank stocks continued to fall. states and around the world.
Major US banks on Monday stock market value of about 90 billion dollars losing nearly 190 of its losses in the last three trading sessions billion delivered to the dollar. News of the new funding failed to calm investors and Moody’s credit Shares of First Republic Bank ( FRC.N ) fell more than 60% as the rating firm considered for a downgrade, the biggest hit among regional U.S. banks.
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in Asia on Tuesday bank stocks decreased, Japanese firms were particularly hard hit. Germany’s Commerzbank ( CBKG.DE ) jumped 13% on Monday and Credit Suisse ( CSGN.S 10Europe’s main banking index (.SX7P) was down 1% again, after falling almost 6% on Monday, including a fall of nearly . on Tuesday as well.
But the consequences of this sudden financial instability – and its potential economic and policy consequences – were seen most clearly in the interest and bond markets.
The extreme volte-face has left futures markets skeptical about whether the Fed will raise rates next week — a quarter-point hike is less than a 50% chance, compared with a half-point rate hike that was priced in at exactly a week ago.
More surprisingly, those markets now suspect the Fed’s tightening cycle is over, with rates peaking at just 4.71% – below the 4.50-4.75% upper band of the current target range and almost a percentage point below the ‘terminal’ . rate’ speculation just last week.
Moreover, futures are also pricing in almost a full percentage point rate cut between now and the end of the year. Europe Targeted terminal rates for the Central Bank and the Bank of England have also been cut sharply – although an extra hike or two for these central banks is still valuable.
Although it has firmed up a bit today, dollars It has weakened against the euro, pound and yen this week.
But the Fed’s rethink led to a seismic move in the U.S. Treasury market, which on Monday marked the biggest drop in two-year Treasury yields since the stock market crash of 1987.
At 3.83% early on Tuesday, those 2-year yields hit their lowest level since September of last year before rising to just above 4%. 10 As annual yields rose above 3.5%, a deeply inverted 2-10 the re-sharpening of the annual yield curve has stopped.
The extent of bond turnover 20Treasury market volatility at highest level since 09 captured by MOVE index (.MOVE) rise – 2020pandemic and 2018overcoming the most stressful periods around the repo market shock of .
in corporate bond markets as investors fear a tightening of borrowing standards and financial conditions in the economy credit spreads have also widened sharply. Indices of US high-yield “junk” bonds fell to the lowest level of the year.
To the extent that this shock to the system affects business lending, confidence and hiring plans, the Fed will likely at least want some time to assess the consequences. It will certainly think twice about tightening policy again to the level of this financial stress and bond market volatility.
Charges will mount among watchdog agencies as to why SVB’s problems did not look good in advance — the Fed’s authority to protect financial stability is likely to be low. inflation and conflicts with full employment mandates.
The Fed said late Monday it would conduct a review of SVB’s supervision and regulation, and Chairman Jerome Powell requested a “comprehensive, transparent and expeditious review” by Michael Barr, Vice Chairman for Supervision, by May 1.
In one of the first public appearances by a Fed policymaker since the crisis, Fed Chair Michelle Bowman is scheduled to speak later on Tuesday.
February consumption to be submitted before that prices report — like last week’s employment numbers — is already a temperature gauge of the economy ahead outdated can be.
Key developments that could guide US markets on Tuesday:
* US February Consumption Prices Index, NFIB February small business survey, Cleveland Fed February CPI
* US Federal Reserve Board Governor Michelle Bowman speaks
* In Brussels Europe ECOFIN meeting of finance ministers of the Union is held
* Earnings of a US corporation: Lennar
Reuters GraphicsReuters GraphicsUS bond volatility risesReuters GraphicsReuters GraphicsBy Mike Dolan Editing by Susan Fenton [email protected]. Twitter: @reutersMikeD
Our standards: Thomson Reuters Trust Principles.
2023-03-14 15:00:02
Source – reuters
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